The Dow Jones Industrial Average with a new all time high close just
confirmed Dow Theory, joining the new high in the Transports. This has
been 4 months in the making. What to do? Look for turn around stocks.
One that I sold out of last month is Sonic....MORE

This was tucked in the link-vault and promptly forgotten.
From CLSA, Jan 22, 2014:

CLSA Feng Shui Index 2014 - Year of the Wood HorseTired stock horse fit for the glue factory? Or fiery Mustang Seng set to giddy-up up up?

Hong Kong - Wednesday, 22 January 2014 - CLSA, Asia’s
leading independent brokerage and investment group, today launches its
20th annual CLSA Feng Shui Index – a tongue-in-cheek financial forecast
for the coming Year of the Wood Horse, with a focus on the Hang Seng
Index, key market sectors, world leaders and celebrities, and each of
the 12 Chinese zodiac signs. All based on little more than a whisper of
wind (feng) and a babble of water (shui).

How do we see the bourse under the influence of the Horse? We conclude that this Pony is un toro in toto
- pure bull from teeth to tail. Its fortune chart may not be the best
balanced, but it is full of Fire - the intrinsic element that’s widely
regarded as the driver of investor sentiment.

This is especially so for the Hang Seng Index, as Fire
is also its “lucky element”. We uncovered so many unexpected
connections, coincidences and links between the HSI and this Wood Horse
that we discern a definite Casablanca connection - ‘the beginning of a
beautiful friendship’. And one that should be very rewarding. Our “pure
bull” forecast sees the index hit 28,105.

Positive, powerful and race-paced - there’s much to like about the
Horse. It’s also well positioned: At No.7 in the zodiac, the Horse kicks
off the second half of the 12-year cycle. Traditionally, the vital
force or energy known as qi is considered to be spent or stale half-way
through a cycle - the Horse heralds the arrival of the so-called second
wind - a burst of invigorating fresh qi.

Once again, this year’s CLSA Feng Shui Index features a
month-by-month guide to the HSI, the outlook for key sectors,
four-sphere forecasts for each zodiac sign, our popular Hong Kong
property guide, and fates of some famous faces – the likes of US Fed
chair apparent Janet Yellen, Japan’s Shinzo Abe, Alibaba’s Jack Ma Yun and futbol capital Rio de Janeiro.

Our Sector-selector Element Detector suggests we’ll see the best performances from businesses associated with Wood (retail, soft commodities, plantations . . . plantations?) and also Fire (the likes of internet, tech, telecoms, some oil & gas and power suppliers)....MORE

Though
Hulbert concedes that markets tend to generate lackluster returns from
May through October, he points out an academic study which suggests that
consumer-staples and other defensive stocks tend to hold up fairly well
during this period.

Interestingly, the
piece by Schaeffer's Rocky White has its own refinement on the "Sell in
May" theme. He writes that he broke down the May-through-October
returns further into three-month intervals....MORE

No one seems to care about the third line of the triplet (aaa) "...come back on St. Leger's Day."
(2nd Saturday in September)

- Here’s the thing: the hash rate of the bitcoin mining network – or in simple terms, its computational power – is about 60 times higher than it was at the start of last fall.
What that increase means is that many Northern Hemisphere miners, whose
increasingly high-tech computer rigs have been competing in an arms
race to grab a limited flow of bitcoins, are about to run into a very
big problem: summer.

As Mark MacAuley at datacenter consulting firm Blunt Hammer writes on his blog,
the main output of bitcoin mining is heat. The faster, more powerful
and more plentiful the computers in that industry become, the more heat
they collectively produce. That means this summer will see a bitcoin
ecosystem that’s exponentially more heat-producing than it was at the
end of last summer.

In many of the big warehouse-like datacenters offsetting all that
heat is going to be a very expensive proposition. Trying to cool those
racks of machines “is like trying to blow into the nozzle on a heat gun
to keep your face from burning,” he says.

For miners in cold places, this isn’t a big deal as the heat becomes a
valuable resource to be recycled back into homes and offices. It also
helps if you have a cheap electricity source, hence the big miner
leasing operations in geothermal-rich Iceland and hydropower-energized
Washington state. But mining capacity is spread across the globe.

So, what might happen this summer? In a telephone interview, Mr.
MacAuley said he thinks many rigs will have to go off line. After all,
bitcoin’s price in dollar terms is now less than half what it was in
December, at the same time that the mining power they’re competing
against is now 10 times what is was then. (Even between September and
December, the hash rate increased sixfold.) This summer, the profit
equation just won’t compute....MORE

...And did the Countenance Divine,
Shine forth upon our clouded hills?
And was Jerusalem builded here,
Among these dark Satanic Mills?...

The Clark Medal
is one of the most prestigious awards in all of academia, awarded to
the “American economist under the age of forty who is judged to have
made the most significant contribution to economic thought and
knowledge.” (Names you might know among previous winners: Paul Krugman,
Milton Friedman, Joseph Stiglitz, Steven Levitt, and Larry Summers.)
This year’s honor went to Matthew Gentzkow of the University of Chicago’s Booth School of Business. Gentzkow is a pioneer in the field of media economics; his work, often co-authored with Chicago Booth’s Jesse Shapiro, takes advantage of previously unavailable data on audience, content, and media impact. Austan Goolsbee, also a Chicago Booth professor, commented on Gentzkow’s work in The New York Times:

“Before the Internet and advances in computing power,
this couldn’t be done,” Mr. Goolsbee said. “You couldn’t analyze the
data and you wouldn’t have had the ambition to try.”

Going forward, Gentzkow said he’s interested in looking at more
international media — he’s focused on finding a comprehensive data set
for global media content. He’s also excited about the potential for data
created by geocoding and cellphones, as well as studying media impact
on the individual level — maybe even with electrodes. We talked about
the cost of information gathering, the demand for quality news, and the
obstacles to gathering data; here’s our lightly edited conversation.

Caroline O’Donovan:
Congratulations! I think I read that you now have a one-in-three shot of
winning a Nobel. My question is: Can you build a predictive model that
tells us what year you’re going to win the Nobel?

Matthew Gentzkow: I think I
should refrain from speculating on that. The scary implication of this
kind of thing is you don’t want to be remembered as the one guy who won
this prize and then didn’t do anything very interesting afterward. One
might think, if you’re lucky enough to win an award like this, then you
can kick back and relax. But it doesn’t really feel like that. It feels
like now I have a lot of work to do to try and live up to this vote of
confidence from my colleagues.

O’Donovan: This is one of those wunderkind awards that specifically exists to make you feel like you have a lot of work left to do.

Gentzkow: I don’t know if 38 years old still counts as a kind,
but I’m happy if it does. I think there is some notion in awards like
this of recognizing people while they’re still working, as opposed to
once it’s all done.

O’Donovan: But joking aside, the
whole idea of all this new, deeper data being available — that’s not
going away, right? So there’s certainly a lot left for you to get into.

Gentzkow: Oh, absolutely. It’s
an incredibly exciting time to be involved in economics — to be
involved in science broadly. There’s more and more data everyday. I
think what everybody will be able to do 10 years from now will make this
year look kind of puny.
The challenge is trying to keep up, keep close enough to the
frontier, keep learning new things, keep up with all these smart
graduate students who are getting their PhDs and know a lot more than I
do. Try to keep producing new research. It’s challenging, but certainly
the data and the technology are going to keep getting better, and that
makes it exciting.

O’Donovan: To dial it back a
little bit, what made you decide that media economics was something you
were interested in? I assume it wasn’t, The data around this issue is
going to explode, and I want to be the guy that was known for taking
advantage of that. So how did you get interested? What were the big
questions that were driving you?

Gentzkow: It was certainly not
as far-sighted as that. The immediate thing was: I’m a graduate
student, I need to find a topic for a dissertation so I can get my
degree and get a job. So for me, like a lot of people, it came out of
this process of casting around, looking for topics, talking to your
advisor. Once I stumbled on it, it was a really good fit. There was a
mix of interesting, rich economics that it seemed like other economists
might find interesting, but also this broader set of political and
social questions. Media is in some sense a market like any other market,
but it’s interesting above and beyond the usual reasons because of the
way it effects the political process. It’s something that the typical
American spends three or four hours a day doing.
I never worked in business — I didn’t do consulting or investment
banking. Some of the things people traditionally work on, I didn’t have
exposure to. Newspapers and TV and the Internet were things I felt like,
as a consumer, I had some intuition about, thought about, found myself
asking questions about. It was a good fit for me to work on something
that had already piqued my curiosity....MUCH MORE

This June the satire site — stuck for now in the hopelessly 20th
century business of spoofing reported, written news articles — will
launch Clickhole.com.

What's that? It's a website that's "putting content and sponsored
posts side by side, with barely any distinction between them," according
to "Jim Haggerty," an Onion News Network host played by Brad Holbrook.

The Onion announced the new site at its digital content NewFronts
presentation Tuesday afternoon in Midtown. And the sneak preview of
Clickhole.com does not disappoint.

"People will climb into this click hole and find content so
interesting they won't be able to keep it to themselves," "Haggerty"
said. "Every post is engineered to be as shareable as possible, so it
spreads like a deadly wildfire on social media."

A few items previewed from Clickhole.com include:

Quizzes like "Which pizza should I have for dinner tonight? (presented by Pizza Hut)"

June 2014

Coming this summer: an all-new internet experience filled
with content so shareable, snackable, and clickable, it will rob you of
all logic and reason. Until then, use the guide below to learn the
proper method of clicking.

Practice clicking the button below between 800,000 to 12 million times in preparation for our launch this June.

Platinum's price stability in the face of the longest miners' strike in SouthAfrica since
the end of apartheid is testament to the industry's success in using
stocks built up in advance to hold the market steady.

That's good news for consumers, but bad news for investors looking for a payday.

Miners in the world's biggest platinum producer have been on strike
at Anglo Platinum, Lonmin and Impala Platinum since Jan. 23, shuttering
40 percent of global production.

Under normal circumstances, such an outage might have been expected
to drive prices of the metal higher. However, platinum , which is used
chiefly in jewellery and as a catalyst in vehicle exhausts, remains
stubbornly lower, at $1,412 an ounce, than on the first day of the
strike, when it fetched $1,452/oz.

Analysts put it partly down to the availability of above-ground
stocks of the metal, which Citigroup estimated at 9 million ounces ahead
of the strike, nearly a year's demand.

But who holds the stocks is as important as the size of them.

"There's a difference between the mining companies and car companies,
whose stockpiles are precisely there to be used up at times of
shortage, and investors, who have to be persuaded to part with their
holdings via a higher price," Macquarie analyst Matthew Turner said.

"The fact that the price hasn't responded suggests to me that it is
those mining company and car company stocks that are being used up at
the moment. That's why the strike hasn't had an impact."

INVESTMENT PICK-UP
The last few years has seen a significant pick-up in investment demand for platinum, much of it physical....MORE

Kitco spot gold $1288.20 down $7.70, spot platinum $1415.00 down $9.00. We are reasonably sure gold will see $875 this year. For folks who had to have exposure to precious we recommended our dirty hedge (long PPLT ETF, short GLD ETF). Here's the last six months, via Yahoo Finance:

- Values Alstom’s energy division at €11.4 billion including the €1.9 billion in cash on its books.
- To base four global power-equipment businesses, including hydropower and steam turbines, in France.
- To add French citizen to its board.
- “We’re committing to increase the number of our employees, in
particular skilled jobs in engineering and production” in France: CEO Jeff Immelt.
- Deal would close in 2015.

The Siemens offer:

- Up to €11 billion in cash.
- To exchange Siemens’ long-distance and suburban train assets for Alstom’s energy divisions.
- The creation of two new European industrial groups: a France-based
train-making company and a Germany-based energy-equipment giant.
- Siemens to retain 19% stake in train-making company though initially stake could be larger.
- “Despite the lack of cooperation of the Alstom CEO, we are prepared to
submit a binding offer provided Alstom has granted us four weeks’
access to its management and to the data room in order to conduct a
customary due diligence in line with industry standards:” Siemens letter
to Alstom management.

The Alstom reaction:

- Accepted GE’s preliminary offer.
- A committee led by board member Jean-Martin Folz to undertake month-long study of offer.
- Decision by June 2.
- To pay GE a penalty worth 1.5% of the acquisition price if the deal doesn’t work out.
- To provide Siemens with fair access to information to allow German group to make its own binding offer.
- Warning to trade unions: “If you’re going to delay things, next time
we see each other it will be to talk about the bankruptcy of this
company,” CEO Patrick Kron tells labor leaders at a closed door meeting according to Christian Garnier, a union representative who attended....

Tuesday, April 29, 2014

We are coming into the hundred year anniversary of that last summer of peace.*
From Global Financial Data (they of the ridiculously long time-series'):

The End of the Gold Standard

It
was 100 years ago, in 1914, that the Gold Standard died. When World
War I began, most countries went off the Gold Standard and attempts to
return to a Gold Standard since have all failed. Some people have called
for a return to the Gold Standard as a way of disciplining governments
and ensuring that they do not inflate their way out of their current
fiscal problems. If it were only that easy.

What many people don’t understand is that in the long run, the
International Gold Standard was a very brief phenomenon, and the fact
that the world moved to a Gold Standard in the late 1800s was a sign of
weakness in the role of gold and silver in the economy, not of
strength. The reality was that Europe was on a bimetallic standard, not
a Gold Standard, from the Middle Ages until World War I, and gold
triumphed in the nineteenth century because bimetallism had failed. This
should have been taken as a sign that the gold standard too would
inevitably fail, not that it was the result of teleological
inevitability.

The first gold and silver coins were issued by Croesus in Lydia around
600 BC. Before that, both gold and silver were used as a store of for
wealth, for conspicuous consumption, or to value other goods, but no
coins existed. The value of gold relative to silver, the gold/silver
ratio, changed over time. In 2700 BC it was around 9 to 1; under
Hammurabi in 1800 BC it was 6 to 1; and by the time Croesus issued the
first gold and silver coins, rather than electrum coins, it was 12 to 1.

The gold/silver ratio remained around 12 to 1 for the next 2500 years,
though it could range as low as 9 to 1 or as high as 16 to 1. Athens
built its empire on the silver mines of Laurium; Alexander the Great
plundered the treasuries of the Persians; and the Romans seized this
stolen bullion when they conquered the Mediterranean. Constantine took
the gold of the Pagan temples for his needs, and whoever controlled
Egypt could rely upon the mines in Nubia as a source of gold. When the
Arabs spread Islam through the world, they seized the gold and silver of
the lands they conquered. When they gained control over northern
Africa, the Arabs also gained power over the gold coming from
sub-Saharan Africa.

Europeans minted a few coins during their Dark Ages, but mainly they
relied upon Arab gold coins. It wasn’t until the Europeans sacked
Constantinople during the Crusades, taking its gold, and the Venetian
cities developed trade surpluses with the Arabs that Europe found a need
to mint gold on a regular basis, starting in 1252.

The chart below shows the gold/silver ratio over the past 750 years. In
the thirteenth century, the gold to silver ratio was around 10 to 1. It
was the scarcity of gold in the fifteenth century that drove the
Portuguese to go south and east to seek gold and silver, and the
Spaniards to go west, discovering the Americas instead of reaching
China....MORE

1914 marked the end of the 100 year Pax Britannica, the régime best exemplified in this very, very rare photograph from a few years earlier:Nine Kings 1910*

*Probably the only time in history the protocol peeps were able to get this many roi boy** types to agree to the order of precedence.
**(pronounced rwa bwas)

May 1910: Nine Kings assembled at Buckingham Palace for the funeral of
Edward VII, the Father of George V (centre). From left to right, back
row: Haakon VII of Norway, Ferdinand I of Bulgaria, Manuel II of
Portugal, Wilhelm II of Germany, George I of Greece and Albert I Of
Belgium. Front row: Alphonso XIII of Spain, George V and Frederick VIII
of Denmark. The funeral on 20th May was the largest gathering of the
European royalty–and its last hurrah, too. Also present at the funeral
was Archduke Franz Ferdinand of Austria, whose assassination four
years later would spark the WWI–which collapsed many royal dynasties of
Europe. Manuel of Portugal would be driven from his throne by
revolutionaries within months of this picture. George would
be assassinated. Alphonso, Wilhelm and Ferdinand lost their thrones.-Source

Sharp eyed readers have probably noted the absence of Nicholas II, Emperor and Autocrat of All the Russias.
Very odd considering that he was part o'the fam:

Eugene Fama and Kenneth French's new five-factor model buries the value factor. What does it suggest about market efficiency?

My colleague Lee Davidson alerted me to an interesting working paper by Eugene Fama and Kenneth French, "A Five-Factor Asset Pricing Model."
Fama and French are famous for their three-factor model, which uses
market, value, and size characteristics to explain stock returns. The
Fama-French model is taken as holy writ by many investors of the passive
persuasion, especially advisors who've been through Dimensional Fund
Advisors' boot camp. After more than 20 years, Fama and French have
embraced the notion that size and value may not be the best factors to
explain stock returns. Their new paper, the first draft of which was
released in June 2013, finds that two additional factors--profitability
and investment--make redundant the value factor. In other words, value
stocks--defined as those with low price/book—only beat growth stocks
because they historically tended to be more profitable and less
voracious users of capital.

The duo defines profitability as revenues minus cost of goods sold,
interest expense, and selling, general and administrative expenses, all
divided by book value. Fama and French define investment intensity as
the year-over-year growth in total assets.

Interestingly, the profitability and investment factors are
negatively correlated. If profitability is a good proxy for return on
invested capital, then in theory, we'd expect such firms to have high
investment intensity to exploit their opportunities. In practice, high
returns on invested capital are often associated with low investment
intensity, as such firms have grown into their markets and cannot
reinvest all their ample earnings in high-return capital projects. Such
firms tend to pay out generous dividends or aggressively buy back
shares.

A value tilt is a bet that on average, value stocks will maintain some
combination of profitability and investment factor loadings that
generate a positive return. Historically, value stocks had the best of
both worlds by being both profitable and capital skinflints, but there's
no law that says this must be true at all times. In fact, today's most
profitable, capital-light firms tend to be "growthier" than they were,
say, 15 years ago....MORE

The home of the NYMEX crude contract, Cushing, Oklahoma, only a few
years ago was swimming in oil, but that has since changed. A
combination of big new crude pipeline projects,
along with the ever-expanding reach of crude-by-rail movements, is
starting to move crude oil out of Cushing. Alison Ciaccio, oil futures editors, discusses the trend with John Kingston, director of news....

The futures are up 1.2 cents at $4.811 but today's action is in the stocks. Putting GASL in the headline is cheating (a bit), it is the triple-levered Direxion Daily Nat Gas Related ETF. More representative is the unleveraged First Trust ISE-Revere Natural Gas Index, up 2.38% at $22.79 and up 20.3% since we got more interested in the stocks on Jan. 9.

Natural gas has seen solid trading so far this year, gaining in double
digits. This is primarily thanks to the coldest winter in decades that
send heating demand (and thus natural gas usage) soaring. After all,
about half of U.S. households use natural gas as the primary source of
heating.

In fact, United States Natural Gas Fund (UNG) has been the star performer in oil & gas ETF world, while First Trust ISE-Revere Natural Gas Index Fund (FCG) is
leading the broad energy space. This is especially true as UNG gained
more than 27.5% in the year-to-date time frame and FCG is up 15.4% for
the same time period (read: What the Surge in Natural Gas Reveals About Commodity ETFs).

This trend is likely to continue in to the spring based on the broad
commodity trends and supply/demand balance. As per the latest EIA
storage report, natural gas stockpiles rose 49 billion cubic feet for
the week ending April 18. Though this is above the analyst expectation
of 42 billion cubic feet, inventory declined 48% from the year-ago level
and 53% from the five-year average.

Weekly gas inventories
represents the lowest level in 11 years, suggesting slowdown in
replenishment of gas stockpiles and raising concerns that the energy
companies might not be able to rebuild inventory to levels high enough
to meet demand next winter.

Further, the outlook for the
weather over the next 15 days calls for slightly cooler than normal
temperatures, indicating that the demand for natural gas usage for
heating would continue to rise adding to stockpile woes.

In
particular, the Midwest and eastern regions of the U.S. will see
below-average temperatures in the next six to 10 days, according to
Commodity Weather Group. This would result in increasing natural gas
price in the coming days despite the U.S. huge fracking boom.

In order to take advantage of this surge in natural gas prices,
investors should consider FCG over UNG. This is because FCG has bucked
the trend of lagging UNG over the past one month and risen about 7.7%
compared to the 5.8% gain for UNG (read: 3 Low Correlated ETFs Surging in Shaky Markets)....MORE

It begins this afternoon around 2 p.m.
It ends Thursday at noon.
So set your "New York is the weather-complaining center of the
world" social media presences at their loudest settings, for you will be
wet and miserable and cold, and how can the rest of the world compete
with that?

Disney Research along with Scott Hudson of Carnegie Mellon's
Human-Computer Interaction Institute have developed a new type of 3D
printer that is capable of turning wool and wool blend yarns into fabric
objects into soft, interactive objects.

A 3D printer developed by Carnegie Mellon
University and Disney Research Pittsburgh feeds yarn into desired shapes
and uses a needle to turn the yarn into a loose felt. Credit:
Carnegie Mellon University/Disney Research Pittsburgh

The device looks something like a cross between a 3D printer
and a sewing machine and produces 3D objects made of a form of loose
felt. Scott Hudson, a professor in CMU's Human-Computer Interaction
Institute who developed the felting printer with Disney Research
support, said the results are reminiscent of hand-knitted materials.

According to Hudson's research paper, 'Printing Teddy Bears: A Technique for 3D Printing of Soft Interactive Objects,' the printer 'allows
the substantial advantages of additive manufacturing techniques
(including rapid turn-around prototyping of physical objects and support
for high levels of customization and configuration) to be employed with
a new class of material. This material is a form of loose felt formed
when fibers from an incoming feed of yarn are entangled with the fibers
in layers below it. The resulting objects recreate the geometric forms
specified in the solid models which specify them, but are soft and
flexible – somewhat reminiscent in character to hand knitted materials.
This extends 3D printing from typically hard and precise forms into a
new set of forms which embody a different aesthetic of soft and
imprecise objects, and provides a new capability for researchers to
explore the use of this class of materials in interactive devices.'

Two quick points up front. There is only one reason to pay attention to Mr. Edwards. He has been right about interest rates. You could make an argument he has been right for the wrong reason; he firmly believed the world economy was going into a nuclear winter but even that probably would have happened if the Fed hadn't done the balance sheet expansion.

Second, kudos to Izabella for avoiding the pedantry of "asset inflation is not inflation".
I know that, she knows that, our readers know that and I'm sure Mr. Edwards knows that. It's just a shorthand way of saying "this is where the money flowed.." Folks who go on-and-on about defining inflation are tiresome.

That said, she does, very courteously, rip him a new one.
From Dizzynomics:

I have bought Piketty’s book, but have not yet read it. I aim to do so shortly. But it will probably take me a while.

From all the reviews I’ve read, however, it does sound like it’s
mainly a data-based confirmation of what most of us non-economists have
suspected for a long time. Namely, that things like multi-generational
property rights (a.k.a inheritance) make society more unequal. Also that
concepts like trickle down economics are more wishful thinking. In
other words, Paris Hilton isn’t all that economically useful for the
rest of us and the fact that she is allowed to get away with a multitude
of closets full of stuff she doesn’t even know she has, doesn’t work
out too well for the rest of us.

Obviously, I commend Piketty on bringing us the quantitative data
that confirm these common-sense suspicions, but I still find it
incredibly hard to understand why it’s taken this long for something so
obvious to be quantified.

But then I read this from Albert Edwards and sigh:

I believe that on a 3-5 year view they (long bonds) will
prove to be a toxic investment. I believe on that timescale QE will
result in a rapid rise in inflation, with Japan probably leading the
way. But it is not the QE to date that will cause an uncontrolled
break-out of inflation, but what is to come in the years ahead (and
incidentally, we fully acknowledge that QE has already produced rampant
inflation, but in the financial markets rather than at the CPI level).

Now, it is not inconceivable that I am the one who is a total idiot.
At the end of the day my modelling strengths lie in Lego and Fimo, not
IS-LM or DSGE. I don’t do data. And I certainly don’t do econometrics.
If I have a world view, it’s one based on narratives, pattern
recognition and logic.

Yet despite all those caveats, I’m at a loss to explain how anyone as
qualified as Edwards can make such a poorly constructed argument — and
do so without cringing at the obvious contradiction at the heart of the
argument that’s being made.

To suggest that QE will inevitably cause inflation in the years to come, and to base that on the logic that QE has already produced rampant inflation, only that it’s happened in financial markets rather than at the CPI level strikes me as absurd.

Is it just me, or is it clearly very obvious that asset-price
inflation is the very means by which the rich get richer and the poor
get poorer, and the world gets more and more unequal? That QE, precisely
because it pumps up asset prices and not the CPI , ends up being
disinflationary (or even deflationary) in the long term because all the
wealth ends up concentrated in ever fewer hands.

Also, that banks have very little incentive to lend in an environment
where just sitting on existing assets provides them with capital gains,
and where credit distribution not only threatens those asset gains but
exposes banks to needless risk they would prefer not to take....MORE

Monday, April 28, 2014

This guy may have a better practical understanding of the interest rate teeter-totter than anyone else in the business.
From ValueWalk:

In an interview with Bloomberg’s Erik Schatzker and Stephanie Ruhle from
the Milken Institute Conference in Los Angles, California, Starwood
Capital Group LLC’s Sternlicht said investors need discipline, “I like
this tree shaking. I kind of like the market sort of reeling and
dropping 100 points. I like keeping fear in the market. I like keeping
people paying attention. Because it’s good for discipline. It keeps them
disciplined.”

Sternlicht was asked why he and other investors get flack for being
in the single family home market and said “It’s a good thing we take
heat because it kept everyone from doing it. And we waded our toes in. I
thought it was a one-way trade. I didn’t think we’d have any risk on
the home values, especially where we bought. We focused on Florida and
Texas and California. We stayed out of some of these wild markets like
Phoenix and Vegas where now you’re seeing property prices go down
because the investors got so aggressive buying those markets beyond
their natural price point.”
Sternlicht also said:

A lot of money in chasing property in Europe

Search for yield is like it was in 2006

We’re in a period of ‘long, slow growth’

Hotel market in New York is softening

Companies still holding back on travel spending

Corporate group travel not what it used to be.

There’s a lot of supply in New York Hotels

Property market is being drive by debt market

15% to 20% returns may be too much

Investors should perhaps aim for 10% returns

Stays out of ‘wild markets’ like Phoenix

Managing houses must be shown to be efficient.

Prices are down in aggressive investment markets.

Likes Jeb Bush for ’16, interested to see how Christie does post ‘Bridgegate’.

After culling Treasuries and bonds issued by federal
agencies last year for the first time since 2007, commercial
lenders such as Bank of America Corp. (BAC) have boosted their
holdings every month this year, Federal Reserve data compiled by
Bloomberg show. Banks now own $1.85 trillion of the debt, within
2 percent of the record amount held at the end of 2012.

With a lackluster job recovery and higher mortgage rates
damping loan growth, banks are tapping record deposits to plow
more money into government debt as regulations designed to limit
risk-taking take effect. The demand helps explain why Treasuries
are rising from the deepest losses since 2009, confounding
forecasters who foresaw declines as a strengthening U.S. economy
prompted the Fed to cut back its own bond buying.

“The economic situation is still not fully bared out and
they have to do something with their cash,” Jeffery Elswick,
director of fixed-income at Frost Investment Advisors, which
oversees about $5 billion in debt securities, said in an April
23 telephone interview from San Antonio. “Banks have been big
buyers of Treasuries. They need safe assets.”

Treasuries have returned 2.2 percent this year, rebounding
from a 3.4 percent loss in 2013. The longest-dated government
debt has rallied the most, with 30-year bonds surging 10.8
percent in the best start to a year since at least 1988, index
data compiled by Bank of America Merrill Lynch show.

Treasuries Demand
Debt investors have embraced Treasuries this year as labor-market gains have proven elusive and consumer spending remains
below the Fed’s target, even after the central bank flooded the
U.S. economy with more than $3 trillion in cheap cash since the
financial crisis to stimulate growth.

The simmering conflict between Russia and Ukraine has also
boosted demand for the safest assets, upending forecasts by
economists for yields to rise throughout the year as the Fed
moves to scale back its monthly purchases of Treasuries and
mortgage-backed securities.

Yields on the 10-year note, which reached a 29-month high
of 3.05 percent in January, have since fallen and ended at 2.66
percent last week. The yield was 2.67 percent at 8:42 a.m. in
New York....MUCH MORE

It's a long road to anything approaching a hydrogen economy and here are some of the reasons why.
From Clean Technica:

We cover quite a lot of university and research institute news here on CleanTechnica. I know a lot of readers love that stuff, but there’s an important downside to news from those sources that is quite prevalent. That news is often overly colorful, optimistic, and revolutionary in its style of writing. Some of those advances will make an impact, some will make a huge impact, but almost none of them are starting a technological revolution any time soon.

Why am I mentioning all of those? Because hydrogen is a cleantech topic that gets a lot of attention in these places, and a lot of people think a hydrogen revolution is being repressed and there’s a conspiracy to keep it from the market. Not the case. Hydrogen has a good deal of potential and is used somewhat in a variety of arenas — energy storage and transportation, most notably. But it is actually not ready for the big time yet.
A new factbook on hydrogen, Hydrogen-Based Energy Conversion — More than Storage: System Flexibility*, really deals with hydrogen’s potential and limitations in a realistic and useful way.

Part of a primer sent to me along with the report, here are a few summary paragraphs:
According to the Factbook, the value of hydrogen-based solutions lies predominantly in their ability to convert renewable power into chemical energy carriers. But hydrogen is more than just an energy carrier. Utilizing the current energy networks hydrogen also acts as a bridge between the different branches of the energy supply system — optimizing the use of energy generated from renewable power at the energy-system level.

The main challenge for hydrogen conversion, however, lies not in its technology but in its economics. Most technologies in the hydrogen value-chain are proved, albeit at different stages of maturity. The FactBook considers that cost reduction is the next prerequisite on the road to commercialization, especially for flexible water electrolysis technologies. Beyond innovations that could disrupt the technology landscape, the principal areas of focus is engineering and manufacturing to allow for greater scalability and capitalize on accumulated knowledge.

Costs are only one side of the commercialization equation. The versatility of hydrogen opens the way to a wide range of end-uses that valorize the power conversion to hydrogen as a service or the hydrogen generated as a product. However, the benefits of hydrogen solutions remain difficult to assess and monetize as most end-markets are virtually non-existent today and are subject to the growing penetration of variable renewables.

If you take a stroll through the Factbook, you will see that is is extremely thorough and is a very science-based report. Of course, I haven’t made my way through the complete report yet — it’s a 280-page PDF! But from what I’ve read, it matches up excellently with the most useful information I’ve ever found on some key hydrogen topics, and then adds much more. Without a doubt, this is going to be my go-to source for information, context, and perspective on hydrogen and hydrogen-related topics for the foreseeable future....

A visit to Sustainable Energy-without the Hot Air may be in order:Ch 20 page 129

Hydrogen cars – blimp your ride

I think hydrogen is a hyped-up bandwagon. I’ll be delighted to be proved
wrong, but I don’t see how hydrogen is going to help us with our energy
problems. Hydrogen is not a miraculous source of energy; it’s just an en-
ergy carrier, like a rechargeable battery. And it is a rather inefficient energy
carrier, with a whole bunch of practical defects.

...Here are some other problems with hydrogen. Hydrogen is a less convenient
energy storage medium than most liquid fuels, because of its bulk,
whether stored as a high pressure gas or as a liquid (which requires a
temperature of -253 °C). Even at a pressure of 700 bar (which requires a
hefty pressure vessel) its energy density (energy per unit volume) is 22%
of gasoline’s. The cryogenic tank of the BMW Hydrogen 7 weighs 120 kg
and stores 8 kg of hydrogen. Furthermore, hydrogen gradually leaks out
of any practical container.E If you park your hydrogen car at the railway
station with a full tank and come back a week later, you should expect to
find most of the hydrogen has gone.E

Price Outlook: Prices did establish a new high with
yet another supportive EIA storage report helping to lift the market.
However, prices fell as the week came to a close with apparent dismissal
of the still rather small injections. While our fundamental bias is for
stronger prices, the market is certainly reluctant to trade higher and
that sentiment must be acknowledged. The CFTC data for April 22 revealed
a continuation in the recent trend of establishing yet another new
record managed money net long position on a percentage basis while
remaining well below the absolute net long record. The absolute net long
position did increase at the same time overall total open interest also
rose to 4.20 million contracts. CME futures open interest fell to just
1.09 million contracts as of April 24. This is the lowest level of open
interest since September 28, 2012.

Weekly Storage: US working gas storage for the week
ending April 18 indicated a build of 49 bcf. Current inventories of 899
bcf fall 835 bcf (48.2%) below last year and 1,002 bcf (52.7%) behind
the 5 year average.

Storage Outlook: After peaking at 937 bcf on March
7, the pace of deficit reduction has been rather slow. At the same time,
May and June 2013 witnessed decent injections and thus the yearly
comparisons will certainly become more difficult. Our current
expectation is that the storage deficit fall to less than 800 bcf in the
latter half of May. However, this pace of deficit reduction is not very
impressive. The implications of the latest EIA storage report do not
yet indicate multiple ++100 bcf injections that is the market
expectation. This week again did not meet or exceed the 5 year weekly
maximum injection we are using as a simple benchmark. Thus, none of the 3
weeks have thus far equaled or exceeded that benchmark. We do see the
impending possibility of beginning to match the 5 year weekly maximum
injection for the week ending May 9. If injections match the 5 year
maximum, and this implies injections every week into early December,
2,586 bcf will added to storage facilities and lift inventories to 3,489
bcf. We are also introducing a 2nd simple metric. We will track and
measure how each injection needs to compare against the 5 year average
injection to reach 3,400 bcf by early November. As of the latest week,
injections must equal 129% of the 5 year average. Again, this metric is
simple, straight forward and unemotional.

Demand for Sand

These are boom times for the sand industry, which is actually a mixed
blessing, resulting in high prices and even environmental risks. The
Global Environmental Alert Service of the United Nations Environment
Programme tells some of the story in a March 2014 report, "Sand, rarer than one thinks." As
the report notes (citations omitted for readability): "Globally,
between 47 and 59 billion tonnes of material is mined every year, of
which sand and gravel, hereafter known as aggregates, account for both
the largest share (from 68% to 85%) and the fastest extraction increase
..."

To get a sense of the volume here, consider this comparison: "A
conservative estimate for the world consumption of aggregates exceeds 40
billion tonnes a year. This is twice the yearly amount of sediment
carried by all of the rivers of the world, making humankind the largest
of the planet’s transforming agent with respect to aggregates ..." Or to
look at it another way, one major use of aggregates like sand and
gravel is for concrete. "Thus, the world’s use of aggregates for
concrete can be estimated at 25.9 billion to 29.6 billion tonnes a year
for 2012 alone. This represents enough concrete to build a wall 27
metres high by 27 metres wide around the equator." Sand and gravel are
also used land in reclamation, shoreline developments, road embankments,
asphalt, and by industries including glass, electronics, and
aeronautics.

Dredging sand and gravel from oceans and rivers causes environmental
disruption, which can in some cases become severe, leading to problems
with erosion, greater vulnerability to storm surges, and destruction of
habitat for plant and animals. "Lake Poyang, the largest freshwater lake
in China, is a distinctive site for biodiversity of international
importance, including a Ramsar Wetland. It is also the largest source of
sand in China and, with a conservative estimate of 236 million cubic
metres a year of sand extraction, may be the largest sand extraction
site in the world. ... Sand mining has led to deepening and widening of
the Lake Poyang channel and an increase in water discharge into the
Yangtze River. This may have influenced the lowering of the lake’s water
levels, which reached a historically low level in 2008 ..." (The Ramsar Convention
is the nickname for the Convention on Wetlands of International
Importance, which is an intergovernmental treaty for protection of key
wetlands.) In general, economic growth in China has been one of the
major reasons for the expansion of sand and gravel mining in the last
decade.

Or to choose a more extreme case: "In some extreme cases, the mining of
marine aggregates has changed international boundaries, such as through
the disappearance of sand islands in Indonesia."

The qualities of sand and gravel matter for their eventual use. For
example, "If the sodium is not removed from marine aggregate, a
structure built with it might collapse after few decades due to
corrosion of its metal structures. Most sand from deserts cannot be used
for concrete and land reclaiming, as the wind erosion process forms
round grains that do not bind well."

With a combination of research and development into alternative
materials, along with different materials methods of landfill and
construction, the use of sand and gravel could be reduced. Some possible
alternative materials for various uses include quarry dust, incinerator
ash, recycled concrete and glass, perhaps finding ways to use desert
sand....MORE

Talk to Andrew Silton for five minutes about
hedge funds and you may want to sell every one you have. The retired
chief investment advisor of North Carolina's pension plan thinks many
funds will be in for a world of hurt once interest rates rise. And with
the Federal Reserve winding down its bond-buying program, he thinks that
rate spike is coming soon. "Hedge strategies that work 90% of the time
could have serious problems," he says.

The
structure of hedge funds presents unique challenges. Because hedge fund
fees -- typically 2% of assets and 20% of profits -- are so high,
managers often employ leverage to juice returns. This amplifies the
exposure to rate-sensitive securities, and also creates a cost structure
that increases along with rates -- they're borrowing at higher rates --
when their portfolios could be the most vulnerable. For this reason,
Silton, in his Meditations on Money Management blog, has urged his
fellow pension managers to rethink their hedge-fund positions.

Not
only does the cost of leverage increase with rates, but the amount of
collateral brokers demand from funds increases, as well. That forces
fund managers to sell off their portfolios to reduce their leverage and
meet margin calls. In a falling market, the end result could be a
snowball effect for their most illiquid stocks and bonds.

Ironically,
Silton thinks the hedge funds most vulnerable to a rate shock today are
those designed to avoid it. Many fixed-income hedge funds buy
high-yield bonds and short Treasury bonds as a defense against rising
rates -- historically, the higher yields on junk bonds provide enough of
a cushion to withstand rate increases. In 2009, for instance, junk
yields got as high as 20%, while Treasuries paid almost nothing. No
interest-rate increase will damage a 20-point yield spread. But today,
high-yield bonds pay less than four percentage points more than
Treasuries—a tight spread that will probably blow out if rates rise. For
one, yield-hungry investors will start to view Treasuries as more
attractive relative to other bonds. Two, default levels for junk bonds
could increase as overleveraged issuers refinance at higher rates,
putting pressure on the sector. Meanwhile, hedge funds will face margin
calls from their brokers, higher financing costs, nervous investors, and
the challenge of selling illiquid junk bonds in a falling market.

Some
hedge-fund experts are already lightening up on their bond-fund
exposure. "We have probably the lowest weighting in credit hedge funds
in years," says Dan Elsberry, senior managing director of K2 Advisors, a
subsidiary of Franklin Templeton that has more than $10 billion
invested in hedge funds. "As rates pick up, it will be much better on
the long-short equity side than the credit side." ...MORE

Power consumption per person versus population density, in 2005. Point size is proportional to land area (except for
areas less than 38 000 km2 (e.g. Belgium), which are shown by a fixed smallest point size to ensure visibility).
Both axes are logarithmic.
The straight lines
with slope -1 are contours of equal power consumption per unit area. Seventy-eight per cent of the world's population live in
countries that have a power consumption per unit area greater than 0.1 W/m2. (Average powers per unit area are sometimes
measured in other units, for example kWh per year per square metre; for the reader who prefers those units, the following
equivalence may be useful: 1 W = 8.766 kWh per year.)

Saturday, April 26, 2014

Before Silicon Valley got nasty, the Pirates of Analog Alley fought it outStealing ideas and fighting over patents existed back when computers had gears, too.

A patent drawing for the Range Keeper, Hannibal Ford's analog fire control computer.

The history of information technology has a way of repeating itself.
Every era's corporate competitors elbow each other for success, try to
better the other's ideas, and sometimes just plain steal from one
another. In that light, it's no surprise that the battles of today’s
technology giants may have been foretold by another wave of
innovators—those at the turn of the 20th century, when electricity was new and computing was done with real machines. Think the kind with gears, cams, and shafts.

The startup culture created by the electrification and communications booms of the late 19th and early 20th centuries
produced a generation of engineers looking for the next big thing. But
their similarities with today's tech leaders go beyond the fact that "a
generation of engineers looking for the next big thing" could just as
easily describe anyone at Google, Facebook, or maybe even SnapChat.
While researching the recent Ars report on Naval analog computers,
parallels immediately revealed themselves. The behavior of the men who
pioneered this analog computing eerily mimics actions we're more
familiar with from Steve Jobs, Bill Gates, Larry Page and Sergey Brin,
and the rest of today’s tech pantheon. These early engineers were, if
you’ll pardon the phrase, the Pirates of Analog Alley.

Absolute Zero

Lord Kelvin's "harmonic analyzer," with disk integrators.

While Charles Babbage may be the “father of computing,” the father of
fire control computing (and of modern analog computing) was William
Thompson, also known as Lord Kelvin. As detailed in Harold Sharlin's
biography Lord Kelvin-The Dynamic Victorian,
Kelvin was like a one-man equivalent of PARC or the Bell Labs of the
latter half of the 20th century—a fountain of great ideas. Some of those
ideas, he cashed in on; some, he let others steal.

Kelvin figured out a number of things about long-distance
telecommunications. He developed a model for the bandwidth capacity of
undersea cables and invented equipment to automatically send and record
messages. Enriched by (and knighted for) his success with trans-Atlantic
telegraph cables and equipment, Kelvin was perpetually tinkering. In
1871, he perfected a little project his older brother had been working
on: the “integrating machine,” or differential analyzer.

This device would be the basis of Kelvin’s machine to calculate tide tables.
Nearly 60 years later, the same principles would be used at MIT to
create the first machine called a differential analyzer, which is used
for calculating complex differential equations. The integrating engine
would be in the back of Kelvin’s mind 15 years later when, as a board
member for Linotype & Machinery Co. Ltd., he had a conversation with the company’s managing director, Arthur Pollen....MORE

I'm not [just] talking about 'Internet of Things' diaper monitors even though they would give a whole new meaning to the term 'download'.
From GigaOm:

While dozens of startups pour time and money into developing mobile
health devices for the young, hale and hearty, they might be better off
going grayer. The opportunity to sell technology to senior citizens is
huge now and will only get bigger as more of us age into that segment.
Which vendors will be best positioned to capitalize on this opportunity
– a handful of early movers that are already in the market, or vendors
like Fitbit (see disclosure) or Jawbone that focus on younguns?

“Developers making technologies for the 20- and 30-somethings are
missing a huge opportunity to supply the 100-million-plus people aged 50
and over in this country,” Laurie Orlov, an analyst with Age In Place Technology, said in an interview. She estimates that this market is worth $2 billion now and will hit $20 billion by 2020. Semico Research
puts the number higher, forecasting that the market for gear like
remote health monitors, oximeters, glucose monitors, medication
reminders, heart rate monitors, safety alert bracelets, etc. will hit
$30 billion by 2017.

How big is big?
You want more evidence? Research released in October conducted by Oxford Economics for the AARP said
that Americans over 50 spend $4.6 trillion annually, with the ripple
effect of that spending hitting $7.1 trillion per year. These are very
big numbers. If you have an elderly relative, sooner or later you’ll
find out how important technology can be in keeping that person involved
and connected with the outside world — perhaps even enabling her to “age in place” as opposed to moving into an assisted-care facility or senior home.

One early mover in this field is Lively, which
provides a home monitoring service pairing sensors with a wireless hub.
It discretely notes when Grandma leaves the bedroom, opens the fridge
or her pill bottle, etc., and alerts family or health professionals if,
say, she doesn’t leave the bedroom for 10 hours or fails to take her
pill (or at least open the bottle). A keyfob sensor can track when and
if the house or car keys are used. Competitors include BeClose and GrandCare....MORE

I recently read a very interesting article in the NY Times Magazine - Silicon Valley’s Youth Problem.
“In start-up land, the young barely talk to the old (and vice versa).
That makes for a lot of cool apps. But great technology? Not so
much,” says its tagline. Its author, Yiren Lu, graduated from Harvard last year with a degree in math and is currently a masters student in computer science at Columbia.

I really enjoyed the article. Ms Lu is a very good writer, storyteller and ethnographer, i.e., a kind of cultural anthropologist. Her article chronicles what she calls the Smart Kids and their Sexting Apps culture of Silicon Valley, a youth bubble
combined with “a frenzied bubble of app-making and an even vaguer dread
that what we are making might not be that meaningful.” “There is a sense among them of manifest destiny, of This is our time,” she writes. What do people in Silicon Valley plan to do once they hit 35 and are officially over the hill?, asks a member of Quora, a popular question-answer site.“Despite
its breathtaking arrogance, the question resonates; it articulates
concerns about tech being, if not ageist, then at least increasingly
youth-fetishizing.”

One is the youth culture. She notes
that the median age of HP employees is 39, compared to 26 at Facebook.
“The valley has always been a hard-charging, ever-optimistic place,
full of people who are passionate about ideas that require some
suspension of disbelief. But in the last 10 years in particular, there
has been an exacerbation of the qualities for which it’s been both feted
and mocked: Valuations are absurdly high for companies with no
revenue. The founders are younger; the pace is faster.”

In
general, transformational change requires such a passionate, suspension
of disbelief, something that is easier when you are young, have few
family responsibilities and can thus devote much of your time to your
cause or career. Also, change often involves taking risks in your
career and personal life, which is also easier when, in addition to
being young and independent, you have safety nets to fall back on if
needed, like a degree from a good university and the financial support
from well-off parents. Not surprisingly, most of the Silicon Valley
young people portrayed in the article are well educated and relatively
affluent, as were many of the young people involved in the sixties counterculture....MORE